Why Grocery Outlet (GO) Shares Are Sliding Today

Radek Strnad /
2023/12/12 11:07 am EST

What Happened:

Shares of discount grocery store chain Grocery Outlet (NASDAQ:GO) fell 5% in the morning session after Goldman Sachs analyst Kate McShane downgraded the stock's rating from Buy to Sell and lowered the price target from $33 to $24. The price target implied a potential 10% downside from where shares traded when the downgrade was announced. 

Separately, the company announced that Chief Financial Officer Charles Bracher plans to step down effective March 1, 2024, to pursue another opportunity. The company will initiate a search for a new CFO with the assistance of an executive search firm. If a replacement is not found by March 1 2024, Lindsay Gray (SVP, Accounting (Principal Accounting Officer)) will serve as Interim CFO. The company reaffirmed its guidance for the fourth quarter and fiscal 2023, indicating that the leadership transition is not expected to have a significant short-term impact.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Grocery Outlet? Access our full analysis report here, it's free.

What is the market telling us:

Grocery Outlet's shares are not very volatile than the market average and over the last year have had only 0 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about one month ago, when the stock dropped 8.6% on the news that the company reported third quarter results with revenue falling short of Wall Street's estimates, driven by worse-than-expected same-store sales. The company also lowered its full-year adjusted EBITDA and EPS guidance, partly because of investments in new technology platforms to synchronize its operations. On the other hand, Grocery Outlet exceeded analysts' adjusted EBITDA and EPS expectations during the quarter. Overall, this was a mixed quarter for Grocery Outlet.

Grocery Outlet is down 3.3% since the beginning of the year, and at $27.74 per share it is trading 20% below its 52-week high of $34.68 from August 2023. Investors who bought $1,000 worth of Grocery Outlet's shares at the IPO in June 2019 would now be looking at an investment worth $972.64.

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